Agreement is Largest Resolution of “Market Timing” Case

WASHINGTON -- Prudential Equity Group LLC (PEG), a broker-dealer subsidiary of
Prudential Financial Inc. (Prudential), has entered into a deferred prosecution
agreement in which PEG has admitted to criminal wrongdoing in connection with
deceptive market timing trading in mutual fund shares dating back to 1999 and
agreed to a payment of $600 million in fines, restitution and penalties.

The agreement was announced today by Deputy Attorney General Paul J. McNulty,
chairman of the President's Corporate Fraud Task Force, who was joined by
Director of the Division of Enforcement Linda Thomsen of the Securities and
Exchange Commission (SEC), U.S. Attorney Michael J. Sullivan of the District of
Massachusetts, and Peter Zegarac, Inspector in Charge of the U.S. Postal
Inspection Service’s (USPIS) Boston District.

The Justice Department has also entered into a separate compliance agreement
with PEG's parent company, Prudential. Under the terms of that compliance
agreement, Prudential will also cooperate with the Justice Department in its
ongoing investigation and will maintain policies and procedures relating to the
integrity of the compliance functions across its various affiliated entities.
The compliance agreement provides that the General Counsel of Prudential shall
make periodic reports to the Prudential Board of Directors Audit Committee as
to the appropriateness and effectiveness of the compliance plan. It also
requires the General Counsel to provide the reports to the U.S. Attorney in the
District of Massachusetts, along with a certification that the reports include
all material information bearing on the effectiveness of the compliance plan.

According to a statement of facts accompanying the agreement, from 1999
through June 2003, a number of brokers at PEG's predecessor entity, Prudential
Securities Inc. (PSI), engaged in a scheme to defraud mutual funds and their
shareholders by using deceptive practices to place thousands of prohibited
market timing trades on behalf of the brokers' clients, which were typically
sophisticated hedge funds. The brokers were able to place these trades,
thereby generating commissions for themselves and illicit profits for their
clients, by manipulating trade information sent over the automated mutual fund
trading system PSI used to communicate trades to mutual funds. Through the
automated system, brokers were able to defeat efforts by the mutual funds to
block their abusive market timing trading, by placing their trades in multiple
accounts, often with multiple identities, to make it appear that the trades
were coming from many different, unrelated brokers representing many different,
unrelated clients.

“This is a great victory for the investing public,” said Deputy Attorney
General McNulty. “The deceptive trading practices at Prudential were
compromising the integrity of many mutual funds. Investors were dealt a bad
hand by corporate con-men who stacked the deck against them. This resolution
sends a strong message to predatory traders who dupe the system to reap
millions in illegal profits."

U.S. Attorney Sullivan stated, “It is critically important for the public to
have confidence in the integrity of our financial systems. The conduct at
issue here was particularly troublesome, because it undermined the integrity
and utility of the automated, standardized mutual fund trading system, a system
that was created to bring greater efficiency to the trading of mutual funds.”

According to the statement of facts, on multiple occasions, the brokers'
deceptive conduct came to the attention of senior management at PSI, who failed
to stop the activity. Mutual fund companies repeatedly sent letters and e-mail
to PSI imposing blocks on further market timing activity by the brokers. Some
of these communications notified PSI that the brokers were engaged in deceptive
practices to continue placing market timing trades.

Despite the communications by the mutual fund companies, PSI continued to issue
brokers additional accounts for the clients engaged in timing; continued to
issue additional broker identification or “FA” numbers to brokers that were
used with the market timing clients; failed to utilize controls that could
limit the brokers’ ability to engage in the deceptive practices; failed to
comply with mutual fund companies’ requests that the market timing conduct of
the brokers cease; misled some mutual fund companies by representing to them
that PSI could and would stop the brokers from trading in their funds, and then
failing to do so; failed to implement appropriate policies designed to prevent
the brokers from engaging in the deceptive practices; and failed to impose any
discipline upon any of the brokers even under circumstances where senior PSI
managers were actually aware of the brokers’ deceptive conduct.

As part of the settlement, $270 million will be paid into the SEC Fair Fund, a
fund set up to compensate victims of the fraudulent conduct. The $300 million
criminal penalty will be paid directly to the U.S. Treasury and $25 million is
being paid to the USPIS Consumer Fraud Fund to assist in future fraud detection
and deterrence efforts. There is also a $5 million civil penalty being paid to
the Secretary of the Commonwealth of Massachusetts.

In addition to the payment, PEG has also agreed to abide by a variety of terms
and conditions for a period of five years, including cooperation with the
Justice Department in its ongoing investigation of abusive and fraudulent
trading in mutual fund shares.

To date, three individuals associated with the fraudulent trading at PEG's
Boston branch office – Martin Druffner, Skifter Ajro and Robert Shannon – have
pleaded guilty to wire and securities fraud charges. Druffner and Ajro are
awaiting sentencing. Shannon was sentenced in July 2006.

This is an ongoing investigation, and the Justice Department and the U.S.
Attorney’s Office in the District of Massachusetts are continuing their
investigation of other individuals and entities for fraudulent trading in
mutual funds.

The case was investigated by the U.S. Attorney’s Office in the District of
Massachusetts, the USPIS, the SEC, and the Secretary of the Commonwealth of
Massachusetts' Securities Division. It is being prosecuted by Assistant U.S.
Attorney Jack Pirozzolo of the Economic Crimes Unit.

Since its creation by Executive Order in July 2002, the Corporate Fraud Task
Force (CFTF) has spearheaded the administration’s effort to prosecute corporate
malfeasance, protect the jobs of hard-working Americans, and restore confidence
to the marketplace. Through the coordinated efforts of several federal
agencies, the CFTF is sending a clear message that criminal activities in the
corporate world will be swiftly and decisively prosecuted. By acting to deter
fraud, the Task Force is also helping to restore shareholder and employee trust
and demonstrating to the American people that the vast majority of corporate
leaders are still honest and hardworking.